You can settle in cash instead. To me this is better since MM only pay about 0.001% right now. Why even risk breaking the buck for less interest than you can get turning in a aluminum can at the recycler?
What's behind Vanguard's forcing everyone to switch settlement funds to their Federal Money Market fund? I'd like to think that fund is less likely to fall below the $1/share value but wonder if VG has other reasons.
What's behind Vanguard's forcing everyone to switch settlement funds to their Federal Money Market fund? I'd like to think that fund is less likely to fall below the $1/share value but wonder if VG has other reasons.
I did not know this. Is it something Vanguard itself offers, or are you talking about transferring funds between VG and a standard bank account?
the rules spell that out .if times require it , you can be prevented from taking out money and the dollar value can float and go below 1 dollar .
https://www.fidelity.com/bin-public/060_www_fidelity_com/documents/MMF_Redemption-restrictions.pdfThe SEC’s new rules permit some money market mutual funds to limit redemptions under certain conditions. In particular, if a fund’s weekly liquid assets were to fall below 30%, the board of directors
of a prime (general purpose) fund or a municipal fund may either charge a liquidity fee of up to 2% on shareholder redemptions or impose a halt on all shareholder redemptions (known as a “gate”) for no lon- ger than 10 days. Additionally, if weekly liquid assets were to fall below 10%, a prime or municipal fund must impose a liquidity fee of 1%, unless the fund’s board determines that such a fee is not in the fund’s best interests. These liquidity fee and redemption gate requirements apply to both retail and institutional funds. Government and U.S. Treasury money market mutual funds will not be subject to liquidity fees or redemption gates.
I have funds in the Prime Money Market fund at Vanguard. Is that the one you're speaking about? I didn't realize that there is the possibility of losing money in that account. It is not an insignificant amount at the moment. I'm wondering if I should transfer it out (I guess only the non-IRA funds) to an FDIC insured bank until I'm ready to do something with it?
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You don't have to transfer out. You can just switch to one the Federal money market fund (whatever they call it), if you don't want to worry about a floating NAV or some kind of redemption delay or penalty in times of crisis.I have funds in the Prime Money Market fund at Vanguard. Is that the one you're speaking about? I didn't realize that there is the possibility of losing money in that account. It is not an insignificant amount at the moment. I'm wondering if I should transfer it out (I guess only the non-IRA funds) to an FDIC insured bank until I'm ready to do something with it?
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I'm a little confused by your post. The MM funds referred to by the OP and Debinov are mutual fund money market funds, not accounts held in a bank. Different rules, no FDIC protection for brokerage MM funds. Nothing to do with bank liquidity.I would not move money into a bank FDIC account out of fear of the impending changes to MM funds. Banks are required to abide by the liquidity coverage ratio rule requiring them to maintain sufficient liquidity. This rule requires banks to maintain liquid assets that equal or exceed 100% of their total anticipated expenses for a 30 day period. The key word is anticipated. If withdrawals start to spike your withdrawals will be frozen for who knows how long. Your local bank might have only a few hundred million in liquidity. And your bank might fail and it may be months before FDIC insurance will kick in. I doubt the Vanguard Prime MM fund will fail.
So relax. This too shall pass.
I'm a little confused by your post. The MM funds referred to by the OP and Debinov are mutual fund money market funds, not accounts held in a bank. Different rules, no FDIC protection for brokerage MM funds. Nothing to do with bank liquidity.
Some banks do call their checking or savings account money market accounts (not funds). Different beast, although the terminology can be confusing.
Also Vanguard's seven retail funds are available only to individual investors. These are the funds Vanguard will seek to maintain a stable $1 share price. It is the institutional investors or those registered as endowments, foundations, etc. that will be stuck with the floating NAV.
Not according to Vanguard, Fidelity, and the SEC. Only the liquidity fees and redemption gates apply.The Prime MM fund will float all the time. It is now required to. Individual investor MM funds will float unless they are Federal govt MM funds.
Reference: https://personal.vanguard.com/pdf/VGMMR.pdfThe rules require institutional prime and municipal money market funds to move from a stable $1.00 price per share to a floating net asset value. Money market funds sold to individual investors maintain the fixed $1.00 share price.
Prime and municipal/tax-exempt money market funds whose investors are institutions are required to move from a fixed $1.00 share price to a floating NAV. U.S. government money market funds will be permitted to retain the stable $1.00 per share NAV and may be offered to institutional investors.
All retail money market funds will also maintain a stable $1.00 share price. In order to be considered a retail fund, the fund must have policies and procedures reasonably designed to limit beneficial ownership to natural persons (for example, accounts associated with social security numbers), including individual beneficiaries of certain trusts and participants in certain tax-deferred accounts, such as defined contribution plans.
Businesses, defined benefit plans, endowments, and other accounts that are not beneficially owned by natural persons will have access only to institutional money market funds.
Reference: https://www.fidelity.com/bin-public...documents/MMF_Compare-stable-floating-nav.pdfSpecifically, institutional prime and institutional municipal money market mutual funds will have a floating NAV, and price and transact shares to four decimal places (i.e., $1.0000). U.S. Treasury, government, retail prime and retail municipal money market mutual funds will be eligible to transact shares to two decimal places (i.e., $1.00), which is known as a stable NAV.
Under the new rules, the SEC defined a retail fund as one that has policies and procedures reasonably designed to limit all beneficial owners to natural persons, which are individuals, or human beings. An institutional money market mutual fund is any fund that does not meet the retail fund definition. Institutional fund ownership can include small businesses, large corporations, and pension plans. Natural persons also will be able to purchase institutional funds.
Reference: https://www.sec.gov/News/PressRelease/Detail/PressRelease/1370542347679Retail Money Market Funds – Government and retail money market funds would be allowed to continue to seek to maintain a stable share price. A retail money market fund would be defined as a money market fund that has policies and procedures reasonably designed to limit all beneficial owners of the money market fund to natural persons. A municipal (or tax-exempt) fund would be required to transact at a floating NAV unless the fund meets the definition of a retail money market fund.